EMERGING MARKETS-Stocks, currencies recover on bargain hunting

By Walter Brandimarte and Natsuko Waki
RIO DE JANEIRO/LONDON, Feb 4 Emerging market
stocks and currencies rebounded on Tuesday as investors hunted
for bargains after a recent selloff, but concern about growth
prospects for China and the United States will probably keep the
market under pressure over the next few days.
MSCI's benchmark index of emerging market stocks
initially hit a five-month low as Monday's selloff extended into
Asia's and Europe's trading hours. The index later trimmed
losses as Latin American stocks rose in sync with Wall Street,
supported by encouraging earnings.
The Latin American portion of the MSCI index
jumped over 1 percent, with Brazil's benchmark Bovespa index
closing about 1.8 percent higher as Itau Unibanco
Holding SA, the country's largest private-sector
bank, posted a record profit in the fourth quarter. The bank's
shares closed with a gain of 4.85 percent, the largest increase
in 2-1/2 years.
With investors in a bargain-hunting mood, the markets
appeared to shrug off the data showing that Brazil's industrial
sector fared much worse than expected in December and a warning
from Fitch Ratings that the government needs to cut spending to
keep its current rating.
After a prolonged market rout, investors were tempted by
valuations in many emerging markets, but remained fearful of
growth outlook downgrades in the United States and key emerging
economies.
"Tactically the markets are starting to look oversold, and a
number of positives could come in and help. For instance, no one
should be worried about U.S. tightening policy this year," said
John-Paul Smith, head of emerging equities at Deutsche Bank in
London.
Prospects for the U.S. economy dimmed after a report showed
on Monday that the country's manufacturing sector grew at a much
slower-than-expected pace in January. The data left investors
wondering whether the U.S. Federal Reserve may slow down the
pace of stimulus withdrawal.
"Needless to say, slowing performance in the world's largest
economy raises fears about global economic growth at large. With
that in mind, hints at the possibility of a pause in the Fed's
'tapering' of QE asset purchases may boost risk appetite," Ilya
Spivak, currency analyst at DailyFX, wrote in a note.
Emerging stocks and currencies have been under pressure as
analysts forecast that the Fed will steadily cut back on its
bond purchases throughout this year, putting an end to the era
of cheap money that had been flooding emerging markets during
the past several years.
CURRENCIES REBOUND
Bets that the Fed could be slower at unwinding stimulus
already supported emerging market currencies, with the Turkish
lira jumping 2.1 percent and the South African rand
trading about 1.7 percent higher after hitting a
five-year low last week.
The Brazilian real rose 0.9 percent to close at 2.414
per dollar. The real was also supported in part by the decision
of Brazil's central bank to start rolling over $7.4 billion in
currency swaps that expire early next month, a strategy to
provide investors with ample hedges against losses in the
foreign exchange market.
The Russian rouble fell as low as 35.5 per dollar,
bringing its year-to-date losses to around 7 percent, but then
erased losses to gain 1.3 percent to 35.98.
ROMANIA CUTS RATES
Bucking a trend of tighter monetary policies across emerging
markets, Romania's central bank cut its benchmark interest rate
by a quarter percentage point to a record low of 3.5 percent,
probably ending a cycle that has brought down the country's
borrowing costs by 175 basis points since July.
Romania's decision "serves as a reminder that not all
emerging markets have suffered heavily during the recent bout of
market turmoil," William Jackson, an economist at Capital
Economics, said in a research note.
Romania's leu gained around 0.4 percent against the
dollar, showing little reaction to the widely expected decision
by the central bank.
Key Latin American stock indexes and currencies at 1925 GMT
Stock indexes daily % YTD %
Latest change change
MSCI LatAm 2,864.18 1.19 -11.57
Brazil Bovespa 46,964.22 1.77 -8.82
Mexico IPC 40,289.10 -1.44 -5.71
Chile IPSA 3,421.33 0.83 -7.51
Chile IGPA 17,058.34 0.67 -6.41
Argentina MerVal 6,123.88 0.61 13.59
Colombia IGBC 11,903.78 0.47 -8.93
Peru IGRA 15,067.65 0.11 -4.35
Venezuela IBC 2,813.32 -0.21 2.80
Currencies daily % YTD %
Latest change change
Brazil real 2.4140 0.93 -2.37
Mexico peso 13.3605 1.35 -2.47
Chile peso 558.1000 0.36 -5.73
Colombia peso 2035.6000 0.54 -5.09
Peru sol 2.8230 0.04 -1.06
Argentina peso 8.0050 0.12 -18.89
Argentina peso 12.5000 0.40 -20.00